AMC acquisition will make little sense for Amazon

Following the recent announcement that Amazon is looking to buy cinema firm AMC;

Danyaal Rashid, Thematic Analyst at GlobalData, a leading data and analytics company, offers his view:

“The cinema industry is ripe for consolidation, with defensive mergers allowing incumbents to maintain their hold on a shrinking market. Despite this, Amazon’s reported approach to purchase AMC Entertainment comes as a surprise. Entering such a deteriorating market would be a risk for Amazon – particularly given the devastating impact of COVID-19 on cinema attendances.

“Direct-to-consumer streaming networks have displaced cinemas in recent years, as blockbusters are increasingly produced and released by the likes of Netflix, which is gaining control of the entire industry value chain. Despite this, streaming firms are struggling to get their content into cinemas for theatrical releases unless they agree to a three-month exclusivity window. Amazon could override this if it acquires AMC, allowing it to simultaneously release blockbusters through its Prime Video service and in theatres. However, despite the fanfare associated with a theatrical release, it is unclear how lucrative cinema offerings will be for Amazon, considering the decline in cinema traffic.

“COVID-19 has forced the closure of cinemas across the world indefinitely, meaning it will take even longer for Amazon to see a return on its investment. This has caused a huge cash-crunch in the industry. In April, AMC raised $500m in debt to help it ride out the crisis. As of market close on May 13, its market cap was just $479.5m. This would allow Amazon to acquire AMC at a cut-price price, but Amazon’s money may be better spent elsewhere, possibly investing in a studio or ad-based streaming service to complement its existing offerings.”

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